Work in progress.
Does the delegation of monetary policy to independent central banks help grow the cake for all, or does it institutionalize a monetary order that allocates a larger slice to capital? At the heart of this debate lies the role of the labor market—both in central bankers’ understanding of the inflationary process and in the transmission mechanism of monetary policy. With its explicit dual mandate, the Federal Reserve is a pivotal test case. We measure Fed policymakers’ understanding of the labor market as a driver of inflation via LLM-assisted text classification methods, applied to the complete corpus of Fed communications during the period 1978-2019. We document a robust ‘rhetorical Phillips curve’—a negative relationship between the rate of unemployment and the salience of labor as a driver of inflation. Going beyond rhetorics, our results show that policymakers are much more reactive in the internal deliberations of the Federal Open Markets Committee than in public speeches, indicating genuine ‘fear of full employment’. In line with the literature finding a strong partisan effect on employment, this fear is more pronounced when Democrats hold the presidency.